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Financial Regulation in a Changing World: Lessons from the Recent Crisis

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  • Gerard Caprio, Jr. Williams College

Abstract

The current crisis is leading many to re-think the role of finance and how it should be regulated. Yet many features of this crisis are decidedly not new. This paper reviews what was regarded as the conventional wisdom on financial regulation prior to the 2007 onset of the crisis, briefly recounts some of the main factors behind the events of the 2007-09 years, and then turns to lessons for regulatory reform. At some point in the 1990s, the financial systems of high-income countries seemed to be functioning well and withstood some significant shocks, yet by 2007 much had changed. However, the regulatory structure did not change in response, and in fact eased in such a way as to exacerbate the instability that was subsequently experienced. A key theme is that financial regulation needs to be more dynamic, taking account of financial innovations and how they affect the sector. No such approach to regulation seems possible without greater accountability for regulators and attention to the incentives for those in the sector and for those who regulate it.

Suggested Citation

  • Gerard Caprio, Jr. Williams College, 2009. "Financial Regulation in a Changing World: Lessons from the Recent Crisis," The Institute for International Integration Studies Discussion Paper Series iiisdp308, IIIS.
    • Handle: RePEc:iis:dispap:iiisdp308
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    References listed on IDEAS

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    Cited by:

    1. Ashraf, Dawood & Mohammad, Nazeeruddin, 2014. "Matching perception with the reality—Performance of Islamic equity investments," Pacific-Basin Finance Journal, Elsevier, vol. 28(C), pages 175-189.
    2. Gerard Caprio, 2011. "Safe and Sound Banking: A Role for Countercyclical Regulatory Requirements?," Chapters, in: Sylvester Eijffinger & Donato Masciandaro (ed.), Handbook of Central Banking, Financial Regulation and Supervision, chapter 14, Edward Elgar Publishing.
    3. Caprio, Gerard & D’Apice, Vincenzo & Ferri, Giovanni & Puopolo, Giovanni Walter, 2014. "Macro-financial determinants of the great financial crisis: Implications for financial regulation," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 114-129.
    4. Capraro, Santiago & Panico, Carlo & Torres-Gonzalez, Luis Daniel, 2021. "The persistent and generalised decline in the U. S. interest rates: an alternative interpretation," MPRA Paper 110181, University Library of Munich, Germany.

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    More about this item

    Keywords

    International financial integration; Emerging market firms; Capital structure;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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